Sainsbury's and Asda could merge in £10bn deal

Merger would challenge Tesco's position as UK's largest supermarket

(Getty)

Sainsbury’s and Asda – Britain’s second and third largest supermarkets – are in advanced talks over a potential £10bn merger.

Negotiations between parent companies J Sainsbury and Walmart are ongoing, with a formal announcement due on Monday morning.

A spokesperson for J Sainsbury said: "Sainsbury's confirms that it and Walmart Inc are in advanced discussions regarding a combination of the Sainsbury's and Asda businesses."

A source told Reuters the new holding group would be called Sainsbury's and be led by the supermarket chain's existing chief executive, Mike Coupe.

Both brands would be kept, with up to 2,800 stores and around 30 per cent of the UK grocery market, the BBC reported.

Asda and Sainsbury’s combined would create a powerful rival to Tesco, the current leader in the UK’s grocery market.

It would be the biggest tie-in since Wm Morrison bought Safeway in 2004, although Sainsbury’s has itself expanded by taking on Argos.

Sky News, which first broke the story, said it was unclear how the shock merger could be structured or whether it would be approved by regulator the Competition and Markets Authority.

Companies can discuss prospective mergers with the regulator in advance, or it can initiate investigations up to four months after any deal is announced.

The CMA has the power to demand changes by firms and ultimately block mergers, although companies normally find a solution or scrap plans before that stage.

Liberal Democrat leader Vince Cable said the possible merger threatens to create “even more concentrated local monopolies”.

"The grocery market - and the British shopper - already suffers from the mid-market being dominated by just a handful of big players,“ he added.

"It is obvious that there must be an investigation by the Competition and Markets Authority."

A representative of US-owned Asda declined to comment on the claims.